Minn. minimum wage hike receives mixed reactions from college community

Madison Andrews is a University of Minnesota Twin Cities sophomore who works part time as a Victoria’s Secret sales associate in the Mall of America.

She makes $7.25 an hour, the federal minimum wage level. But this summer, Andrews is set to get a raise.

On April 13, Gov. Mark Dayton signed into law a bill that will raise the state minimum wage for more than 325,000 Minnesotans.

Many in the state will see wage increases this summer — the first of three progressive wage hikes is set for August where the wage floor will rise to $8.00. The mínimum wage will rise to $9.00 in August 2015 and to $9.50 in August 2016.

To account for inflation starting in 2018, the minimum wage is set to rise with an annual cap of 2.5%. Businesses that make less than $500,000 will be required to raise minimum wage floor to no higher than $7.75 by 2016.

Before the hike, minimum wage in Minnesota is $6.15 for large employers and $5.25 for small employers, making Minnesota one of four states where the minimum wage is below the federal level.

Based on a new Star Tribune poll of 800 Minnesotan adults, 42% agree with the $9.50 increase. A diverse array of people showed support, regardless of political beliefs, gender, age or state regional differences.

Andrews is one of those supporters. “I am ecstatic. During the school year, i only work weekends but then in the summer, i work full time so this raise will definitely help,” she says.

As a senior sales associate with more than two years under her belt, Andrews believes her job will be stable. But she worries for her newer co-workers whose hours may be cut by their employer who will be figuring out how to budget the labor cost increase.

Businesses will have to decide the best way to rework their budget to account for the wage increases.

Some may cut workers or decrease workers’ hours. Others may increase the prices of their goods to cover their extra wage expenses.

Aaron Sojourner, a labor economist at University of Minnesota Carlson School of Management, says while there will likely be no overall effect on employment in the long run, small restaurants and businesses may be most hit in the short run.

Some business sectors may be more hard hit than others, especially those who depend on minimum wage workers.

Tea Garden is a mini-franchise in the Twin Cities that sells gourmet tea drinks near and within several college campuses. The brand is highly involved in the college community – not only is it a popular destination for college students, it also hires 80 to 90% of its employee base from full-time college students.

Nick Nguyen, co-owner of Tea Garden, says wages currently range from $7.25 to $9.00. They spend more than a third of their revenue for payroll, and increasing that chunk is a “scary prospect.”

“I don’t know if we will be able to get by without having to raise prices of goods sold or reduce hours for employees,” Nguyen says.

Tea Garden is not considered a small business based on the law’s $500,000 gross sales baseline.

Nguyen says the minimum wage increase is still “the right thing to do in the long run.”

Another sector that may be affected is grocers, all of which are above the $500,000 cut off line, according to Jamie Pfuhl, president of the Minnesota Grocers Association. She says the main concern from the new minimum wage is inflation of prices.

“The marketplace is very competitive – it’s not a simple decision to raise prices.”

It is estimated that the new law will increase consumer purchasing power by $470 million, according to Steve Fletcher, the executive director of Minnesota 2020, a progressive think tank.

Pfuhl is not fully convinced. “Purchasing power goes up but businesses are also increasing the pricing of goods, and have to reduce customer services. I wonder whether the effect will neutralize completely.”

She says grocers may end up downsizing their workforce. One out of every three jobs in groceries and convenience stores is held by someone between the ages of 16 and 23.

Sojourner says that while every business will have to make adjustments in the short run, which may affect some individuals, overall there will be little to no negative effect on employment.

“This has been studied a lot over the past decade. Evidence shows there has been no detectable impact on employment,” Sojourner explains. “I would not going so far as to say that this will spur growth and job creation but when businesses say this will hurt jobs […] it’s misguided.”

Unlike businesses, students hired by their university may not face too many short term adjustments.

“Student wage is a small expense to the university, compared to other costs,” Sojourner explains. “These jobs are low skill, part-time and lowest paid.”

This past year, University of Minnesota employed 7,538 students with a weighted average wage of around $9.88 per hour.

Across the Mississippi River in St. Paul, Macalester College student employees may even see a perk from this wage increase.

Bob Graf, director of employment services, says most students who work on campus are on financial aid work study positions. Each student is allocated a certain level of work study financial aid that they must meet, say $2,000. If wages go up, students may need to work less hours before they hit their cap.

“Some students become an important part of the staff and they can’t work less hours. In that case, the college may increase their work study award.”

Macalester currently hires about 1400 student workers. Half of them will receive a wage increase to $8.00 in August.